In response to KJZZ's reporting on his testimony in federal court this week, Arizona Department of Corrections Director Charles Ryan filed an affidavit saying he had "mistakenly testified" about incentive payments made to Corizon Health. Ryan now says all incentive money paid to Corizon "came entirely from funds appropriated for health care."

Ryan also states he mistakenly testified about Corizon's payment of attorney fees in the Parsons v Ryan prison health care settlement. Ryan now states "Corizon pays only that percentage of outside counsel's monthly statements that are attributed to substantial non compliance litigation under the stipulation, and does not pay any percentage of the $250,000 annual attorneys' fees for plaintiff's counsel."

Hearings regarding potential sanctions against the state for poor health care conditions in Arizona prisons continued in federal court on Monday and Tuesday.

In October, Magistrate Judge David Duncan wrote in an order: “Because of pervasive and intractable failures to comply with the Stipulation, the Court is considering the exercise of its civil contempt authority.”

But as early as last June, the judge had been warning the state: Fines were on the horizon.

There are more than 100 benchmarks in the stipulation. In his October order, Duncan specified 11 performance measures the state had repeatedly failed to meet. Duncan ordered the state to keep track of each failure of those 11 measures across all 10 state-run prisons for December, saying those failures would each be subject to $5,000 fines.

At the hearings on Monday and Tuesday, lawyers for the inmates and the state called witnesses to provide background for the judge as he weighs the possibility of levying millions of dollars in fines for the failure to meet the settlement agreement. Attorneys for the state called Arizona Department of Corrections Director Charles Ryan and Assistant Director Richard Pratt to testify to their efforts at compliance with the stipulation. Both were highly critical of their provider, Corizon Health.

All Reasonable Steps

The key to whether sanctions will be imposed is in the final paragraph of Duncan’s order: “If the Court finds clear and convincing evidence that Defendants have failed to take all reasonable steps to comply with this Order.”

By calling Ryan and Pratt to the stand, attorneys for the state sought to show ADC had taken “all reasonable steps” to comply with the stipulation.

Ryan and Pratt were asked to read letters ADC had sent to Corizon over the past two years. In the correspondence, ADC repeatedly and strongly admonished Corizon Health for failing to meet performance measures and contract obligations.

Both administrators testified they were also in weekly contact with the leadership at Corizon and would express their displeasure in the company’s performance on a regularly basis.

Reading from one of his own emails to Corizon, Pratt said, “To be clear, we demand that Corizon take all immediate steps to comply with the court’s order.”

Carrots And Sticks

Throughout a history of amendments, there have been sanctions and incentives introduced to the state’s contract with Corizon, in an attempt to bring about compliance and fill vacant staffing positions.

Pratt testified that since the beginning of the contract, the state has received $3.8 million in staffing offsets, which is money Corizon adds to the state’s tab when it fails to hire enough doctors and nurses and other positions.

At a previous hearing, Pratt told Judge Duncan it was possible that Corizon was simply paying the fines instead of hiring more employees.

Pratt testified this week that despite repeated attempts to get Corizon to hire more staff, including demanding that the company fly staff in from out of state, ADC has made little progress.

“We push and push and push,” Pratt said. “We talk, we communicate. We demand that Corizon actually fill empty positions. We can’t hire them ourselves, but we continue to address the issue.”

There are sanctions in the state’s contract with Corizon to punish the company for failing to meet the performance measures and increasing the amount of time Arizona is under a federal monitor. But in the most recent amendment to the contract, the state added an incentive package as well.

“There’s a carrot and there’s a stick” Pratt said. “The sanctions are the stick.”

For each individual failure, Corizon pays the state $5,000. Pratt said as of January, those fines totaled more than $3 million. But as of the latest contract amendment, if Corizon meets overall compliance levels at a rate greater than 90 percent, the company gets a cash bonus. Pratt and Ryan testified that this incentive money is capped at $3.5 million, but more than $2.5 million has already been paid out in just four months.

As Duncan noted, “the bunny is eating the carrot.” Pratt agreed that within a few months, the incentive money would probably all be paid out.

“Should you have held in reserve some amount of the carrot?” Duncan asked.

Pratt said that was possible but still believed that the incentive package had contributed to rising levels of compliance.

Plaintiffs’ attorneys noted that in just four months of incentives, Corizon had earned back nearly all of what it had paid to the state in sanctions over the course of five years.

‘Vacancy Savings’

When plaintiffs’ attorney David Fathi asked Ryan where the money for the incentive package came from, Ryan identified three sources: operating funds, contingency funds and vacancy savings.

Ryan said “vacancy savings” are unspent funds from correctional officer vacancies. Ryan said 14 percent of funded correctional officer positions are currently vacant. In the past, Ryan told the court, vacancy savings money had been used to give correctional officers bonuses. Now, Ryan said, some of that money is going to Corizon.

Ryan said he did not know how much of the $2.5 million came from vacancy savings. Ryan and Pratt testified that there was nothing in the contract specifying how Corizon should use the incentive money.

Fathi asked Ryan if there was a chance that ADC would pay out any additional incentive money when the $3.5 million was paid out. Ryan said Corizon Health CEO Stephen Rector had personally inquired in the previous week about more incentives and had asked him to consider it. Ryan said he told Rector no more incentive funds would be available, but he declined to say whether he had included future incentives in his most recent budget request to the governor.

Leaving Money On The Table

In addition to cash incentives, plaintiffs’ attorneys argued that the state was leaving a large amount of the money on the table in the form of sanctions.

Until the November contract amendment, ADC was capping monthly sanctions at $90,000. Plaintiffs’ attorney Corene Kendrick asked Pratt if he thought $90,000 monthly sanctions would have an impact, when Corizon grosses more than $400,000 a day from its health-care contract with Arizona.

Pratt said he believed the sanctions did have a positive impact.

From March 2016 to October 2017, $1.8 million in sanctions were levied against Corizon. Had the caps not been in place, Corizon would have paid the state more than $8.6 million, a difference of more than $6.8 million in potential money that would have gone to the state.

Both Pratt and Ryan stood by the contract negotiations, saying they were smart business decisions.

Fathi called the incentive program a "giveaway of tax payer money. Corizon is already contractually bound to provide these services so why ADC proposes to pay them an extra $3.5 million is difficult to understand."

Who Pays?

The hearing on potential sanctions will continue on April 10. Duncan will then decide how much money, if any, the state will pay for failing to meet the performance measures.

But under cross-examination, Ryan admitted that he had asked Corizon to compensate ADC in the event of potential sanctions. If Corizon agreed and sanctions were assessed, Fathi asked, “Sanctions would not cost ADC anything?”

“That is correct,” Ryan replied.

Ryan also told the court that Corizon was compensating ADC for the full cost services provided by attorney Dan Struck, whose firm is representing the state. Ryan also believed that Corizon was compensating the state for plaintiffs’ attorney fees as well.

“The concern is that ADC has no skin in the game,” Fathi said. “And there’s no financial consequences, no matter how far out of compliance they are.”

EDITOR'S NOTE: This story has been modified to correct the name of ADC's director.